Court bars FIRS from enforcing VAT on consumables in hotels

• Increase will impact more on urban centres, wealthy, says minister

Justice Rilwanu Aikawa of the Federal High Court in Lagos has barred the Federal Inland Revenue Services (FIRS) from enforcing VAT provisions on goods and services consumed in hotels, restaurants and event centres in Lagos State.

Justice Aikawa gave the order while delivering judgment in the suit seeking to restrain the Attorney General (AG) of Lagos State from enforcing the Hotel Occupancy and Restaurant Consumption (Fiscalisation) Regulations Law (HORC) 2017, in the view that VAT Act has covered the field.

The Registered Trustees of Hotel Owners and Managers Association of Lagos (HOMA) had sued the Lagos State AG and FIRS in the suit no. FHC/L/CS/360/2018.

It asked the court to declare that by virtue of Section 7 of the VAT Act, FIRS was the only lawful and constitutional agency charged with the administration and management of consumption tax generally and particularly in Lagos State.

But in his ruling, Justice Aikawa dismissed the suit and held that it lacked merit, adding that the plaintiff was obliged to comply with the HORC Law 2009 and the HORC Regulations 2017.

The court also raised issues on whether the Federal High Court had the jurisdiction to rule on the constitutionality of VAT to which the court resolved that it had jurisdiction.

Aikawa also held that the issue of the powers of the minister to amend the schedule to the Taxes and Levies (Approved List for Collection) Act was not in dispute before the court and so no pronouncement could be made on it.

The court, therefore, dismissed the originating summons for lack of merit and resolved the questions and reliefs sought in favour of the first defendant

Meanwhile, Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, has said the proposed VAT increase will impact more on consumption by urban communities and the wealthy individuals in the country.

Ahmed, who spoke at the 2019 summit with the theme, “Nigeria 2050 Shifting Gears,” explained that the proposed tax increase would not affect the poor masses as perceived by some people.

“The proposed VAT increase is likely to impact more on consumption by the urban communities and the wealthier sections of the population than the poor,” she said.

She added that the ministry would coordinate its fiscal policies with the Central Bank of Nigeria (CBN’s) current tight monetary policy stance to ensure that the appropriate out turns are achieved in terms of growth, consumption and inflation.

She, however, said Nigeria’s VAT contribution to the nation’s Gross Domestic Product (GDP) declined from one per cent between 2010 and 2013, to 0.8 per cent between 2015 and 2018, saying, “This is significantly below the median of five per cent of GDP in other comparable African countries.

“Nigeria’s low VAT-to-GDP is attributable to the low nominal VAT rate, which at five per cent is the lowest in the African region which averages at about 16 per cent. Furthermore, the efficiency of VAT collection at 0.2 per cent is below the African regional average of 0.33.”

The minister also stressed the urgent need to design policies that would address the rising population, ensure paradigm shift to a competitive private sector led economic growth and development.